Section 138 of the Negotiable Instruments Act, 1881 makes it an offence to issue a cheque for a debt or liability that is dishonoured for insufficient funds, if the drawer fails to pay within 15 days of a written demand. The payee must send the demand within 30 days of learning of the dishonour and file a complaint within one month after the 15 days expire.
What is Section 138?
It is a criminal provision designed to give credibility to cheques. It applies only where the cheque was issued to discharge a legally enforceable debt or liability. The law presumes, under section 139, that the cheque was issued for such a debt, but the drawer can rebut that presumption.
The timeline
- The cheque is presented within its validity, generally three months from its date
- The bank returns it unpaid
- The payee sends a written demand within 30 days of receiving information of dishonour
- The drawer has 15 days from receiving the notice to pay
- The complaint is filed within one month after those 15 days end
What happens in court?
The Magistrate examines the complaint and issues summons. The case is generally tried summarily. The court may order the accused to pay interim compensation of up to 20 percent of the cheque amount under section 143A. On conviction, the punishment can be imprisonment for up to two years, a fine of up to twice the cheque amount, or both.
Can the case be settled?
Yes. The offence is compoundable under section 147, and many cases end with payment recorded before the court. In an appeal against conviction, the appellate court may require a deposit of at least 20 percent of the fine or compensation under section 148.
Where is the complaint filed?
Under section 142(2), generally before the court within whose local jurisdiction the branch of the payee's bank, where the cheque was delivered for collection, is situated.
Jurisdiction
This article describes central Indian law as it generally applies in Gujarat. Procedure, forms and court practice can differ between States and between courts, and the law changes. Check the current position for your matter.